Template-Type: ReDIF-Paper 1.0
Title: Corporate Secular Stagnation: Empirical Evidence on the Advanced Economy Investment Slowdown
Abstract: We detail a secular slowdown in investment rates using a large panel of advanced economy non-financial firms from 18 countries between 1994-2017. We test competing explanations for the investment slowdown using a Bayesian 'mixed effects' model, with time-varying and country-varying coefficients to fully explore variation in financing constraints and investment behaviour. Firms' estimated underlying impetus to invest falls precipitously between 1997-2017, with only a mild recovery between 2003-2008. The slope of the investment demand curve -- approximated by time-varying Q regressions coefficients -- remains roughly constant, indicating that `financialization' or growing monopoly power has not dulled firms' responsiveness to investment opportunities. Contrary to precautionary savings arguments, advanced economy firms are not meaningfully financially constrained. Instead, the corporate sector as a whole is increasingly a net external `releaser' of funds to shareholders, creditors, and bondholders, and this behaviour closely tracks declining investment rates between years.
Author-Name: Strauss, Ilan
Author-Name: Yang, Jangho
File-URL: https://oms-inet.files.svdcdn.com/production/files/Paper_1___Advanced_Economy_Investment_Rates.pdf
File-Format: Application/pdf
File-Function: 
Keywords: Secular Stagnation, Investment Slowdown, Hierarchical Model, Finance Constrained, Tobin's Q, Investment Rates, Corporate Savings, Bayesian Econometrics.
Length: 61 pages
Classification-Jel: D22, D24, E12, E22, E23
Creation-Date: 2020-07
Handle: RePEc:amz:wpaper:2019-16